Tuesday, 8 July 2008

A two for one deal

How many times have I posted the Bradford and Bingley share price? However many times it might be, it is always worth posting it one more time. The bank is a poster child for everything that is wrong with the UK financial sector.

Today, the B&B share price fell another 19 percent. The company has lost half its value since the beginning of the month and it is down about 90 percent over the year. If things carry on like this, soon the bank will be worth nothing.

Currently, the market capitalization is about ₤207 million. For one short moment ths year, the bank was worth ₤2.8 billion. Imagine that; over ₤2.6 billion of shareholder value has disappeared.

The bank is looking for ₤400 million to shore up its capital. However, the market thinks it is worth about half that. There could be a little problem here. Why spend ₤400 million on something that is only with a little over ₤200 million?

It is a two for one deal that any sensible investor would pass up.


aSteve said...

If anyone considers the value of B&B shares to be positive, I think them to be extreme optimists.

Conversely, if B&B were - in fact - a sound business with a funding deficit, then I'd see no problems with a rights issue for double the market cap. The issue, I think, is rather that B&B have a loss making business model... where bankruptcy might well be the most kind end... but for the consequences to the wider landscape within financial services. As I see it, the idea that other banks might not want B&B's washing to be done in public offers the only credible hope of a reprieve.

Anonymous said...

" If things carry on like this, soon the bank will be worth nothing."

It already is, but the shareholders don't know it yet.

It's a sign of just how incompetent mgt is that they could've raised capital a year ago at 400p rather than 55p. The future should've been pretty obvious to them back then, and they'd have had no trouble recapitalising.

Of course it wouldn't fix a broken business model, but at least insolvency would be off the cards.